Assignment Of Overriding Royalty Interest

Assignment Of Overriding Royalty Interest-83
It is illustrative to examine how Texas has treated the rule that an ORI carved out of a lease with pooling authority, is subject to the lessee’s authority to pool without further consent of the ORI owner.This rule was discussed and recognized within power to pool the leased interest.

It is illustrative to examine how Texas has treated the rule that an ORI carved out of a lease with pooling authority, is subject to the lessee’s authority to pool without further consent of the ORI owner.This rule was discussed and recognized within power to pool the leased interest.

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There is one exception to this general rule that is so common, many in the industry go so far as to consider it the general rule. Where an oil and gas lease expressly grants a lessee the power to pool his interest, overriding royalty interests created out of that leasehold interest are also presumptively subject to the lessee’s pooling authority.

The rationale underlying this rule is that, because overriding royalty interests are carved out of the lessee’s interest, they are subject to the lessee’s exercise of its authority under the lease, including pooling authority.

However, at least one Texas court has refused to recognize custom and practice or surrounding circumstances as providing the basis for such authority to pool.

In , the court first stated the general rule that royalty interests cannot be pooled without express authority.

In the Wyoming Supreme Court first explained that Wyoming follows a similar general rule as adopted in Texas: a lessee is without authority to unitize royalty interests, including overriding royalty interests, without consent of the interest owner. The only ‘power’ granted to the lessee was the ability to withhold consent to the lessor’s power to pool.

The lessee argued that the overriding royalty interest owner constructively gave consent to pooling, due to the inclusion of pooling language in the underlying lease.

court then applied this rule to the State of Wyoming lease, concluding that the phrase allowing the lessee to withhold consent to pooling should be characterized as a lessee protection, because it was was intended to protect the lessee from pooling court reasoned that the ORI owner should also be afforded this protection, thereby allowing him to withhold consent from pooling.

As stated above, I believe this holding does not have general, wide-reaching applicability.

Under Wyoming precedent, a compelling argument can be made that ORIs are subject to pooling by the lessee, so long as (1) the underlying oil and gas lease expressly provides that the lessee has the authority to pool, and (2) the assignment creating the ORI does not otherwise negate this authority.

Again, however, I do believe that this issue has not been directly and clearly resolved by the Wyoming courts.

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